Too little, too late for Macron? Too little, too late for Macron? Too little, too late for Macron?

Too little, too late for Macron?

Macro 6 minutes to read
Christopher Dembik

Head of Macroeconomic Research

Summary:  The French "yellow vest" movement continues to call for further protests, and the Macron government's ability to meaningfully address its concerns appears limited.

On Tuesday, the French government announced several measures including a six-month fuel tax delay that will cost a total of €2.5 billion. It is seen as too little and too late by the gilets jaunes movement that continues to protest and is calling for another massive demonstration in both Paris and the countryside on Saturday.

According to all polling institutes, the movement enjoys massive support from the population, between 70% and 80%.
Say goodbye to deficit reduction

The government has two main options to finance the cost of the tax delay. The first option would be to increase the public deficit. The deficit forecast for 2019 is at 2.8%, which represents €66.7bn. A 3% deficit, which is the limit allowed by European treaties, is equivalent to €71.6bn. Therefore the government’s fiscal leeway is about €4.9bn. Since the tax delay will cost around €2.5bn, the government could decide to finance this measure by slightly increasing the deficit while remaining under the 3% line. It would still have a fiscal cushion of €2.4bn before reaching this symbolic threshold.

It is not that easy, however, as to reach its deficit projection, the government is counting on GDP growth of 1.7% next year, which seems overly optimistic. In theory, a slowdown in growth of 0.1 percentage points leads to an average deficit increase of 0.06 percentage points of GDP. Concretely, if growth is between 1.4% and 1.5%, as we realistically anticipate, the French public deficit will not be at the planned 2.8%, but at 2.98% – just below the permitted threshold.

The risk is extremely high that if the government chooses this option, there will be long and tough negotiations with the EC once everyone realises that the official growth forecast is not aligned with hard economic data.
The second option would be to revoke the reduced VAT rate for restaurants and again apply the reference rate of 19.6%. This measure was initially aimed at reducing bills for clients and creating jobs in the sector, but it has been very inefficient. The loss for the state in terms of tax revenue is around €3.6bn/year and there are still nearly 100,000 unfilled jobs in the hotel and restaurant sector. This would be quite easy to implement with a rather limited negative effect.  
Little macro and market impact so far

So far, it is difficult to estimate the real macroeconomic impact of the movement, but it will certainly lead to lower GDP growth in Q4 and, if it continues, we should expect very ugly figures in Q1 2019. Investors still seem confident, however, regarding French assets. The CAC 40 index has showed resilience over the past few days due to the strong performance of export companies’ stocks. However, if there is again an atmosphere of civil war on Saturday, foreign fund managers will grow uneasy, especially Japanese investors who could drastically reduce their purchases of French sovereign bonds (as was the case just before the 2017 presidential election).
What’s next?

The government has waited too long before addressing the demands of the gilets jaunes. To appease protesters, it will need to announce strong symbolic measures such as the reinstatement of the wealth tax or measures that will have a visible impact on purchasing power.
The most obvious and easiest option could be to reestablish the wealth tax. An evaluation of the impact of the cancellation of the wealth tax on investment is planned for the fall of 2019. There are two main issues: the first is that the timeframe between cancellation and evaluation is far too short to know the real impact. The second one is that it is impossible to know how the capital that should have been taxed under the wealth tax has been used.

We are unable to know whether this cancellation has really benefited investment in the real economy, as expected by the government. Since the reestablishment of the tax on wealthy people is a strong demand of the movement, and since it could have a rather limited negative impact on the economy, this option seems quite likely. However, it would clearly stop reforms in France and it would symbolise the premature end of Macron’s presidency.
The other oft-discussed option is to increase the minimum wage, but this would have a very negative consequence on the French labour market. As part of the economic recovery of 1981, the government had decided to increase minimum wage by 6.4% per capita, which contributed to a jump in the unemployment rate from 5.6% in 1981 to 6.9% in 1983 despite higher GDP growth.

Subsequently, and when faced with the failure of this economic policy, the government was forced to opt for austerity measures. A similar decision would have almost identical negative effects and would lead to higher unemployment rate. It seems risky for the government to implement such a measure; it would represent economic suicide.


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.